Bitcoin price slides on technical glitch

Updated
February 12, 2014 13:46:00

The digital-currency Bitcoin has fallen to its lowest price in nearly two months, after the exchanges which convert US dollars to Bitcoin were attacked. As the currency's popularity continues to rise, the technical glitches have highlighted some of the problems with burgeoning digital currency markets.

ELEANOR HALL: The digital-currency bitcoin has fallen to its lowest price in nearly two months. It was caused by a cyber attack on an exchange which converts US dollars to bitcoin and it coincides with the announcement from US financial regulators of new rules for the digital currency, as Will Ockenden reports.

WILL OCKENDEN: Since bursting onto the scene a couple of years ago, bitcoin has gone through a dazzling rise in both popularity and value.

But with popularity come problems, both regulatory and technical.

ANDREAS M. ANTONOPOULOS: This is a problem with the on-ramps and off-ramps caused by centralised exchanges.

WILL OCKENDEN: Andreas M. Antonopoulos is an IT security expert, with a speciality in bitcoin.

ANDREAS M. ANTONOPOULOS: Bitcoin is still a complex technology, is still developing.

WILL OCKENDEN: Bitcoin's latest woes began when one of the world's largest exchanges, Mt Gox, suspended withdrawals of the crypto-currency, blaming a bug in the software.

That means customers can no longer transfer their bitcoins for US dollars and it's causing panic.

Sebastien Galy is a currency strategist at Societe Generale in New York.

SEBASTIEN GALY: The top was roughly about $1,200 not so long ago, many weeks ago, and then we've seen some collapses since, a series of collapse since then.

WILL OCKENDEN: Essentially, fake transactions are being injected into the bitcoin network, making it hard to work out what is a real trade and what is fraudulent.

Security expert Andreas M. Antonopoulos compares it to someone presenting a photocopied receipt to a department store in order to get a refund twice.

ANDREAS M. ANTONOPOULOS: What Mt Gox was doing is it didn't have a tight enough process there so they may have actually double refunded or allowed withdraws twice.

WILL OCKENDEN: While fake transactions aren't new, over the last few days the number of them has ballooned and is now affecting everyone.

The bitcoin market is currently still fluctuating widely, as the attack on Mt Gox replicates and expands.

One bitcoin is currently buying about $US650 - nearly half of what it was a few months ago.

Sebastien Galy.

SEBASTIEN GALY: This is not a market with a lot of depth behind it and it's fairly easy to manipulate the level of the exchange rate in this case driven by bitcoins. There's a relatively small amount of liquidity. Bitcoins is much closer to an exotic metal than it is to an actual currency.

WILL OCKENDEN: While it's often described as a digital currency, bitcoin still heavily relies on exchanges.

They are the only way for everyday people to obtain it.

Mt Gox isn't the only exchange to suspend withdrawals. Another called bitstamp followed, due to the problems caused by Mt Gox.

The Wild West crypto-currency days could be coming to an end. New York's financial regulator says it wants to protect customers by imposing disclosure rules and licensing on businesses that use the currencies.

It would make it the first US state to regulate virtual currencies like bitcoin.

ANDREAS M. ANTONOPOULOS: What gives them monetary value is broad adoption rather than who the issuer is unlike traditional currencies and just like information in the internet age, depends on the contents not the publisher.